Sri Lanka Succesfully Completes Its Domestic Debt Optimization. Here'S What It Means

Initial Public Offering
SRI LANKA SUCCESFULLY COMPLETES

ITS DOMESTIC DEBT OPTIMIZATION.
HERE’S WHAT IT MEANS
The road to a Recovery
• Government announced a debt standstill

Mid April 2022 (as an interim measure)
September 2022 • Reached Staff Level agreement with the IMF
• IMF Executive Board Approval for Sri Lanka’s

March 2023 EFF
March 2023 • Receipt of the First Tranche of USD 330 mn
June 2023 • DDO announced
September 2023 • First review of the IMF Due
October 2023 • Second Tranche Due
Year-end 2023 • External Debt Restructuring Due
Source : CBSL Reports / SSB Research

The DDO Proposal
T-bonds
Reduction in Coupon Rates
CBSL T-Bills • 12.4% until 2024
• 7.5% until 2026
In Phase 2
• 5.0% until maturity
Longer
Term
Reduction in Coupon Rates
Superannuation T-bonds
• 12.0% until 2025
Funds’ T-Bonds • 9.0% until maturity
New USD
instruments Haircut 30% No Haircut
• 6 year maturity • 15 year maturity
• Fixed Interest • Fixed Interest
SLDBs and Rate 4.0% Rate 1.5%
FCBUs
No Haircut
• 10 year maturity
New LKR • Floating Interest Rate : SLFR + 1.0%
instruments
Softening SL’s Gross Financing Need
Targeted
GFN
Decline
Absence of debt treatment 16.8% 0.0%
External debt restructuring 14.2% -2.6%
Domestic debt restructuring 12.7% -1.5%
CBSL’s T-bills and Govt. Advances -1.0%
Superannuation fund T-Bonds -0.5%
SLDBs and FCBUs -0.1%
Sri Lanka’s GFN target for 2027-2032 is 13%, This can only be
achieved via a mix of local and external debt restructuring

Hitting the Targets
Out of the total outstanding T bonds issued by the GoSL, only 36.5% was
targeted for the DDO, based on the CBSL’s proposal.
84% of the Superannuation Funds’ Bonds have been accepted for the
exchange, with a total DDO participation of 36.5%, hitting the CBSL’s target.
Government issued T-Bonds*

0.3%
8.7 tn 3.2 tn
18.9%
36.5%
= =
11.9%
100% 36.8%
32.5%
Gov. T-Bonds Accepted for

*As at the announcement of DDO Restructuring
EPF State Banks Other Banks Others CBSL

An Adjustment of the Risk Premium
On the back of the DDO strategies being executed, interest rates

declined steeply, a trend that is likely to continue.
Interest Rates 12 month T-bill Rate

18 35%
16 12.00% 30%
14 25%
12 20%
10 15% 13.35%
11.00%
8 10%
6 5%
4 0%
SDF Rate (%) SLF Rate (%)

SSB’s Outlook
As inflation normalizes and GDP growth remains low, regulators

may opt to lower rates targeting economic growth
15%
80%
70% 10%
60% 5%
50% 0%
40%
-5%
30%
6.30% -10%
20%
-15% -11.50%
10%
0% 4.60% -20%
2017 2018 2019 2020 2021 20222023

2022 2023
CCPI NCPI

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Colombo 02, Sri Lanka.
+94 (11) 7 277 000
[email protected]
www.softlogicstockbrokers.lk
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Initial Public Offering

SRI LANKA SUCCESFULLY COMPLETES

• Government announced a debt standstill

September 2022 • Reached Staff Level agreement with the IMF

• IMF Executive Board Approval for Sri Lanka’s

March 2023 • Receipt of the First Tranche of USD 330 mn

June 2023 • DDO announced

September 2023 • First review of the IMF Due

October 2023 • Second Tranche Due

Year-end 2023 • External Debt Restructuring Due

Source : CBSL Reports / SSB Research

Absence of debt treatment 16.8% 0.0%

External debt restructuring 14.2% -2.6%

Domestic debt restructuring 12.7% -1.5%

CBSL’s T-bills and Govt. Advances -1.0%

Superannuation fund T-Bonds -0.5%

SLDBs and FCBUs -0.1%

Source : CBSL Reports / SSB Research

Government issued T-Bonds*

Gov. T-Bonds Accepted for

EPF State Banks Other Banks Others CBSL

Source : CBSL Reports / SSB Research

On the back of the DDO strategies being executed, interest rates

Interest Rates 12 month T-bill Rate

SDF Rate (%) SLF Rate (%)

Source : CBSL Reports / SSB Research

As inflation normalizes and GDP growth remains low, regulators

2017 2018 2019 2020 2021 20222023

Source : CBSL Reports / SSB Research

+94 (11) 7 277 000

Disclaimer Local & Non-USA based clients

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